Millennials Are Renting Instead of Buying: Here’s What it Means for Landlords
Why Aren’t Millennials Buying Houses?
Millennials have been blamed for killing dozens of industries, from mayonnaise to hotels — but are they also single-handedly killing the housing market?
Not exactly. They are, however, renting at higher rates than any other generation before them. The U.S. Census Bureau reported in 2018 that only 1 out of 3 millennials owns a home. There are several key reasons why this may be the case.
Cautious Millennial Investing Habits
Many millennials came of age at the onset of the Great Recession, which made it difficult to enter or remain in the workforce. Younger millennials watched their parents’ homes go into foreclosure. Although the economy has largely recovered since then, some argue that it has made millennials a cautious generation when it comes to big investments like buying a home.
Delayed Milestones: Millennials Wait to Get Married
Some millennials are waiting longer to get married or have children, two milestones that often precede home ownership. It’s not that millennials aren’t getting married — they’re just taking their time before tying the knot. And the declining divorce rate seems to indicate that children of divorce learned a thing or two from their baby boomer parents’ failed marriages.
Millennial Urban Lifestyle
For the majority of this generation, the American dream no longer includes a white picket fence in the suburbs. 88% of millennials live in a metropolitan area. They are city-dwellers who value living closer to work and the best that city life has to offer. Renting is often the most viable option in these urban areas.
Rising Student Loan Debt
Millennials are one of the most highly educated generations, but they also are saddled with significant debt — the average millennial has about $33,000 in outstanding student loans. As a result, their savings accounts have suffered. In fact, according to a Business Insider survey, 58% of millennials have under $5,000 in savings.
Higher Housing Costs
In cities like Los Angeles, in order to buy a median price home on a median salary, you’d need to save 20% of your paycheck for almost 11 years just to afford a 20% down payment. For many, home ownership just doesn’t seem feasible. Even getting a mortgage loan is harder for millennials. Tightening restrictions on credit requirements and debt-to-income ratios mean fewer applicants are getting approved. Additionally, starter homes are often difficult to find, with competitive investors often snapping up the best deals with all-cash offers.
How Millennial Renters Affect Landlords
There are some valid theories as to why millennials aren’t able (or in some cases, not willing) to buy homes at the same rate as previous generations. However, it’s just as important to know what this trend means for the real estate market, particularly for landlords who may end up renting to them.
High Demand for Rentals
Built-for-rent housing has nearly doubled from what it was between 1992 and 2012, with nearly 43,000 single-family homes built for rent in the last year according to the National Association of Home Builders. At this point, demand is even outpacing new construction.
Interest in Upscale Rentals
The media often paints a grim picture of millennial wealth, but there are some millennials whose financial situations have improved in recent years. Wealthier millennials who aren’t just living paycheck to paycheck may prioritize living in a rental that offers all the amenities they want over purchasing a starter home that doesn’t fit the bill. They may prefer to rent more upscale homes or apartments in affluent areas. These millennials value having a home that makes it easier to commute to work, restaurants, bars, and other city amenities. These types of properties may be a good investment opportunity when trying to woo the more financially established millennial tenants.
Tailored Rental Features
Millennials have grown up in a world full of more choices than ever, and most of them know exactly what they’re looking for in a rental. Given that 73% of millennials currently have a pet, you may want to consider allowing pets in rentals. Millennials are also very attuned to new trends in technology, so it might be wise to make your units tech-friendly. Educate yourself about what millennials are looking for, and try to be accommodating.
Most millennials won’t be renters forever, but this generation likes to do things in their own time, on their own terms. Home ownership may still be a ways down the road for many of the youngest in this generation, some of whom are still in their early 20s. With millennials making up the largest portion of the U.S. labor market, landlords and investors alike should give their fair share of energy to catering to this unique demographic if they want to maximize their profits.